On Friday, August 31, the U.S. Supreme Court agreed to review the constitutionality of something which could make it harder for a company to defend class-action lawsuits.

Companies prefer to defend themselves in federal court, but soon, they may be forced to defend themselves in a state court, if the person bringing the lawsuit signs a binding “stipulation,” which limits the size of the case.

Companies rely on the Class Action Fairness Act of 2005 to move cases to federal court from state court. The only requirements are that the suit involve a minimum of $5 million, and that the company is not incorporated or based in the state the case was filed, in order to ensure there is no in-state prejudice.

In the case the Supreme Court agreed to review on Friday, Standard Fire Insurance Company received the lawsuit in Miller County, Arkansas, in state court, over the underpayment of homeowner claims.

The person suing the insurance company for hail damage to his house, signed a stipulation, which limits damages and binds potential class members, including people his lawyer has not yet represented. He claims that Standard Fire Insurance Company did not pay for charges associated with retaining the general contractor for any repairs resulting from damage to the property. These charges, known as general contractors’ overhead and profit (GCOP), which add an additional 20 percent fee. His lawsuit claims that the insurance company fraudulently concealed this obligation on the homeowners’ insurance contracts throughout the state of the Arkansas.

The stipulation was approved by a federal judge in Arkansas. He added, “if a stipulation is legally binding and made in good faith, it can satisfy the plaintiff’s legal certainty burden and defeat removal.”

This case is scheduled for the Supreme Court’s next term, which begins October 1. Oral arguments by both sides may be expected as early as November or December, and a decision is expected by the end of June 2013. For more information, contact a Gacovino & Lake attorney at 1-800-246-HURT (4878).

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